Should I use a mortgage broker?

Are mortgage brokers worth your time? Should you use a mortgage broker? And how exactly do they help you? These are questions that many people ask when applying for a home loan. 

While mortgage brokers can be extremely useful for some, emerging direct-to-consumer lending products are becoming popular alternatives.

What is a mortgage broker?

A good mortgage broker should know about different lending options. Equipped with the intel from a mortgage broker, you can proceed to negotiate with lenders, and potentially secure a competitive rate.

Melbourne mortgage broker, John Ng, told the ABC that it can be fruitful to show your lender you’re prepared to take your business elsewhere.

“When the lender receives a discharge notice, they will throw everything to keep the consumer,” Mr Ng says.

The pointers a mortgage broker can provide can empower you to keep your lender on their toes, save you time, and ultimately mitigate stress – all big pros. Ensuring your lender can cater more specifically to your lending requirements is increasingly important, as many homeowners gear up to shop around in a higher rate environment.

‘A mortgage broker can survey the market and help you to find a deal that’s right for you. It’s probably a good idea to use one if, say, you have past credit issues or your employment or financial situation isn’t straightforward,’ writes the Guardian’s Rupert Jones.

What are the risks of using a mortgage broker?

Mortgage brokers essentially function as intermediary performers between lenders vying to secure new consumers and borrowers often exhausted by the research and administration involved in their application. This can make for a conflict of interest.

Mortgage brokers work with many different lenders, which can help if you are looking to compare and understand different options. However, comparing and understanding products under a mortgage broker’s guidance doesn’t by default mean you’re being presented with the lowest rates available on the market. 

Ordinarily, borrowers don’t pay for mortgage brokers’ services directly. Most mortgage brokers work on upfront and trailing commissions. These commissions are paid by the lenders themselves.

Consumers should therefore be wary of the range of mortgage products that are put to them, or the lack thereof. A mortgage broker may have knowledge of many different mortgage products, however this full range may not necessarily be presented to you.

Most direct-to-consumer products are of no value to mortgage brokers, as they do not feature a commission for their services. This is a con for mortgage brokers, and a con for consumers, as non-commission, increasingly rate-competitive products can be omitted from a mortgage broker’s advice to prospective borrowers or refinancers.

“It helps to ask your broker to explain how they operate and why they are recommending certain products,” says independent financial advisor, Jacie Taylor.

Some mortgage brokers’ services do involve applicant charges. This is not expressly a con, per se (some would argue this is more transparent for consumers and sets more realistic expectations). It is worth establishing which method your mortgage broker observes before proceeding with their advice, to avoid any surprise charges down the track.

Although their insights into different products may be in-depth and exceed what you yourself feel comfortable determining, mortgage brokers do not have any more decision-making power than you do when it comes to the actual approval of the loan itself. This is entirely up to the lending or banking institution. A mortgage broker can only facilitate your lending application process in an educational, encouraging capacity. Mortgage brokers cannot mobilise or action the actual lending or rates you’re considering. 

If you do enlist a mortgage broker as you embark on your lending or refinancing journey, doing your own homework on them is important. Consumers have public access to the ASIC Connect Professional Register, where you can check if your mortgage broker has a valid credit license to practice.

Alternatives to using a mortgage broker

Navigating the noise of offerings across different lenders can be overwhelming. The lending landscape is undergoing significant changes, with a suite of emerging products fast-tracking the lending process and ultimately removing the need for third-party counsel, such as that often provided by mortgage brokers.

Fintech companies such as Nano demonstrate an industry shift towards direct-to-consumer lending. Nano approves standard loans in 10 minutes and processes complex applications in an average of 18 minutes. The Nano process involves property valuations, customer loan repayment history analyses, income and expense checks leveraging a process that “scrapes” bank account data, loan serviceability calculations, and identification procedures to meet know-your-customer rules.

Commonwealth Bank Australia has released a comparable direct-to-consumer product called Unloan, as has NAB with its in-house developed mortgage assessment technology, the Simple Home Loan. NAB’s product is currently used by all NAB mortgage bankers and some brokers, and could be transposed to a direct-to-customer platform.

Many streamlined lending processes such as Nano require at least a 20% deposit from the borrower. This vetos the need for lenders' mortgage insurance, but excludes some applicant cohorts in doing so.

Even if you are eligible to use platforms such as Nano, this kind of technological expediency might just not be your cup of tea. Many consumers still want to properly hash out what it is they’re signing up for and consider product comparisons that highlight which lending options fit their unique needs. If this sounds like you, it could be worth giving a mortgage broker a call. 

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